ABB beats expectations amid ‘challenging’ market

ZURICH: Swiss-Swedish engineering giant ABB on Wednesday posted better-than-expected earnings, even as its net profit plunged amid “challenging” conditions, including slumping demand in China and the United States and lower oil prices.

For the June-to-September quarter, ABB’s net profit fell 21 percent to $577 million (508 million euros), beating analysts’ expectations that it would rake in only $527 million.
The group’s revenue meanwhile slumped 13 percent to $8.5 billion.

That fall was, at least in part, attributed to the strengthening US dollar: Discounting currency fluctuations, the decline stood at only 2.0 percent, ABB said in its earnings statement.

Company chief Ulrich Spiesshofer said in the statement that the third quarter results “reflect the challenging markets we face,” blaming “short-cycle demand in oil and gas”.

Plunging commodity prices, for oil but also for metals, forced a “massive contraction” in spending by many oil and mining companies, with a disastrous impact on their suppliers, Spiesshofer said in a conference call.

This was reflected in a sharp decline in orders, which fell 22 percent year-on-year, or 12 percent when not counting the impact of currency fluctuations.

The Chinese and US markets were also down, he said, also noting that the quarter was being compared with a very strong period last year.
The results did not come as a surprise.

ABB, which is undertaking a vast restructuring programme, last month lowered its sales growth target for the next five years and unveiled a cost-cutting programme aimed at achieving $1.0 billion in savings by 2017.

The company at the time said its new sales target of between three and six percent through 2020 had been “aligned to new market realities.”

Spiesshofer said Wednesday the group was not yet planning any job cuts, and would instead rely on “natural attrition”.

In the third quarter, only the division dedicated to power products and power systems saw revenues increase, while they were down in all other units, “primarily due to a lack of short-cycle volumes and weak demand in many parts of the distribution channels in the first nine months of 2015”, ABB said.

In the short term, the company said it expected to see “continued uncertainty”.

“Some macroeconomic signs in the US remain positive and growth in China is expected to continue, although at a slower pace than in 2014,” it said.

But it warned that “the market remains impacted by modest growth in Europe and geopolitical tensions in various parts of the world,” and that “current oil prices and foreign exchange translation effects” would continue to affect its bottom line.

On a positive note, Spiesshofer said the company, which halted all expansion plans last year, felt “ready to reengage in acquisition”, adding though that there was “no rush”.